Weather worries U.S. cattle producers as they slowly expand herds

ZUEHL, Texas (Reuters) - Texas rancher Jim Rackley would like to add more cattle to his herd of about 50 to take advantage of sizzling beef prices and growing demand from health-conscious consumers for his grass-fed beef. But the prospect of cloudless skies keeps him cautious.

Rackley's worries over a lack of rain are typical of many U.S. beef cattle producers trying to restock after a years long drought, which peaked in 2011, decimated ranches built up over generations and shrank the nation's herd to its smallest in more than 60 years.

Now a combination of record-high cattle prices and cheap grain has prompted ranchers to start adding back cattle earlier than expected. But the rebuilding will still be long and slow.

Producers like Rackley worry the drought will return, shriveling scant pasture and sending grain costs soaring again. At the same time, there is no guarantee Americans will continue to consume beef at the current rate, given high prices.

"Every time we think we're coming out of the drought, we get hit again,' said Rackley, a former high school football coach in Texas, where the sport and beef are state passions.

Rackley's 49 chocolate brown and black cattle, including 25 cows used for breeding, have yellow numbered tags clipped to their ears for identification. He surveys a landscape of flat pasture and points out which animal (#55) will be the next to go to slaughter at the end of the month.

Feeder cattle futures trading about 20 percent higher than a year ago at 199.45 cents a pound, and corn futures trading 13 percent lower near $3.85 a bushel, are providing obvious incentives for ranchers to rebuild their herds.

Still, the decision to expand is proving complicated for many, with the price for buying new cattle at nearly $3,000 a head and pasture still patchy in places. The topic was a focus at a cattle conference in San Antonio, Texas, last week.

The nation's herd edged up one percent to 89.8 million head by Jan. 1, according to the U.S. Department of Agriculture (USDA), stunning analysts who had predicted a decline and prompting some to bring forward to late 2016 from 2017 their expectations of when beef supplies will increase.

The cattle population was larger than in 2013 and 2014, but still the third smallest since 1952, said University of Missouri livestock economist Ron Plain.

"Herd rebuilding is on the way, but putting a calf into the herd today will take at least a year and a half before you get anything out of it," said Jack Salzsieder, owner of Iowa-based brokerage firm JRS Consulting, referring to the time required to bring a calf to maturity to be processed.

DROUGHT DILEMMA

In Oklahoma, Joe Smith wants to rebuild his cattle herd after selling three-fourths of his animals in 2011.

Smith said he was being "very cautious" in his attempt to expand production, holding back 10 cows of his 100-head herd to breed, instead of sending them to slaughter. His ranch in Duncan, Oklahoma, still needs more rain to grow grazing grass.

About 33 percent of the southern United States, including the big cattle states of Texas and Oklahoma, was in some form of drought as of Feb. 5, down from about 37 percent a year earlier, according to the U.S. Drought Monitor.

However, 8.7 percent of Texas was considered to be in extreme or exceptional drought, the two worst categories, up three percentage points from a year ago.

It may be 2018 or 2019 before increased supplies start to significantly push down beef prices, said Derrell Peel, an agricultural economist at Oklahoma State University, adding there are "a lot of places that are vulnerable to go backward in a hurry" if conditions turn dry.

In the meantime, beef prices are likely to stay high, squeezing consumers in grocery stores and restaurants and prompting some Americans to eat less beef.

Per capita consumption fell to an estimated 54.3 lbs (24.6 kg) in 2014 from 56.3 lbs (25.5 kg) a year earlier and is forecast to slip to 52.7 lbs (23.9 kg) in 2015, according to the USDA, even though overall consumption still outstrips domestic production.

Beef processors like Cargill Inc [CARG.UL] and National Beef Packing Co [NBEEF.UL] are desperate to see production rise. They have shuttered beef-processing plants in recent years and may still need to close more facilities, said Pete Anderson, director of research for cattle nutrition company Midwest PMS.

One of the few processors investing in expansion is JBS USA LLC [JBS.UL], which is sinking $75 million into a Utah beef plant. But the company is looking to include dairy cows to raise its output there.

Meanwhile, in drought-hit California, rancher Kevin Kester plans to reduce his 300-head herd further after cutting it from as many as 500 head he had back in 2010.

"Everybody wants to expand," he said. "We're looking for Mother Nature to cooperate."